Are Credit Card Rewards Taxable?
Are Credit Card Rewards Taxable?
When my wife and I made vacation plans last year to visit Portland, Oregon, I was surprised when she made one stipulation – she refused to pay any money for transportation or lodging costs. She wanted those vacation expenses to be free. As we did not have any friends or family in the area, and we do not own an RV or camper, I was stumped as to how we would pull this off.
Fortunately, my wife is a clever and resourceful person. She decided that we would apply for credit cards and earn airline miles and hotel points to redeem for our trip. Additionally, there were other credit cards where our purchases would earn reward points that could also be redeemed for free nights at hotels or converted to airline miles.
Over a period of several months, she applied for a few credit cards, charged most of our normal expenses (cellphone, cable, gas, etc.) to those cards, and began racking up airline miles, hotel points, and bonus rewards. When we went on our vacation (without the kids!), we ended up spending about $100 on airfare (ticketing fees) and less than $50 on Marriott hotels. That’s not bad for two round-trip tickets from San Jose to Portland and a four-night hotel stay.
However, using all these points and miles to purchase airline tickets and hotel lodging made me think of one question – are any of these credit card rewards and rebates taxable income? When I posed the question to my wife, she said “Well, that’s for you to worry about, not me!”
So, for those of you who are interested in knowing and who also enjoy the perks that these rewards bring, here’s my research on the issue:
The answer generally is No.
(1) Credit card rebates are considered to be reductions in the price you paid for something, and it is not income to you.
(2) Typically, credit card rewards (miles, points, etc.) are earned when spending requirements are met. Because you had to jump through some transactional hoops to earn that reward, the reward is not income to you.
On the flip side though, the rewards you receive for doing nothing other than signing up for the card, could increase your income because they are treated as gifts. And if the value of the gift exceeds $600, the company is required to you a 1099-MISC. (If it is less than $600, they may also issue you a 1099-MISC as well). For example, a lot of times, you will see banks offering promotions where they will give you $X amount of cash bonus if you open an account with them. Often times, they will issue you a 1099 for the bonus that you have received. One thing to remember is that if you do receive these 1099s, they do need to be reported on your tax return. I have had clients whose tax returns were audited because of something small like forgetting to report a $200 1099-MISC.
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